Crude Oil Price Movements
OPEC Monthly Oil Market Report – August 2017
Crude Oil Price Movements
The OPEC Reference Basket (ORB) recovered in July to $46.93/b, up almost 4% on bullish market
fundamentals after two consecutive months of sharp declines. The oil complex rebounded on receding fears
of oversupply as solid seasonal demand soaked up some of what is seen as a glut on the market. Oil prices
rose nearly 10% after the last meeting of OPEC and major non-OPEC producers, including Russia, when
the group discussed potential measures to balance the oil market. Y-t-d, the ORB’s value was 33.7% higher
or $12.55, at $49.75/b.
Oil futures recovered m-o-m, ending July above $50/b. Prices improved as OPEC and non-OPEC countries
continued to comply with pledged output adjustments and US stocks declined further, providing more
evidence of global destocking. Bullish product demand, a fluctuation in Nigerian production, weakness in the
US dollar, healthy refining margins and improved perceptions of solid end-user demand, as well as
encouraging economic indications regarding China provided further support to crude prices. Short covering
also contributed to the rally in oil futures. ICE Brent ended July $1.59, or 3.4%, higher at $49.15/b, while
NYMEX WTI increased by $1.48 or 3.3%, to stand at $46.68/b. Y-t-d, ICE Brent is $10.23, or 24.4%, higher
at $52.18/b, while NYMEX WTI increased by $9.03, or 22.3%, to $49.50/b.
The ICE Brent/NYMEX WTI spread widened despite successive weeks of US crude stock draws. This
somewhat helped US exports. Improvement of fundamentals and the clearing of floating storage in the
North Sea supported the Brent market. The Brent-WTI spread widened to $2.47/b in July, representing a
12¢ expansion over June.
In July, short covering, rather than long building, has driven oil prices higher, which suggests fund managers
are becoming less bearish about prices rather than more bullish. Hedge funds reduced combined short
positions in Brent and WTI crude futures and options contracts by 163 mb, according to data published by
regulators and exchanges.
The contango structure narrowed in all markets, verging on sustained backwardation, as the oil glut started
to ease. This removed the financial incentive for traders to store barrels, a factor likely contributing to the
drawdown of stocks witnessed during the month.
Sweet/sour differentials were mixed in July, widening significantly in Asia, while narrowing in Europe on
tighter sour supplies. In Europe, the light sweet North Sea Brent premium to Urals medium sour crude
decreased again by 21¢ to 69¢, a two-year high on firm demand for sour crudes.
OPEC Reference Basket
recovered on bullish market fundamentals in July after two consecutive months of sharp declines.
It was up almost 4% m-o-m but y-t-d was slightly below $50/b y-t-d, for the first time this year. The oil
complex rebounded on receding fears of oversupply as solid seasonal demand soaked up some of what is
seen as a glut on the market. Bullish inventory reports over the month helped confirm the declining trajectory
of global inventories. Chinese oil imports in the first half of this year were up almost 14% from the same
period in 2016, helping to drain the global fuel glut. US crude oil inventories have fallen by more than 10%
from March peaks to 475.4 mb. Drilling for new production in the US is also slowing, with just 10 rigs added
in July, the fewest of any month since May 2016. Oil prices have risen nearly 10% since the last meeting of
OPEC and non-OPEC major producers, including Russia, when the group discussed potential measures to
balance oil markets. Prices were also lifted by short covering.